Friday, February 02, 2007

AirAsia X, the Long-haul Budget Airline

Now the dust has settled. Tony Fernandes, owner of no-frills airline AirAsia, announced a new company. The new company is named AirAsia X - X for eXtra long.

Unlike most no-frills airline, AirAsia X will offer long-haul budget flights. Its first planned route is from Malaysia to UK. Apparently, Tony Fernandes is going to reuse the business model of his original company in AirAsia X, but will it work? I am not familiar with aviation industry, but would like to do an “outsider’s analysis”.

In the original AirAsia, aircrafts do not take off at full throttle, i.e. they take off at smaller gradient. This requires longer runway but the advantage is that fuel consumption is reduced. This cost-saving strategy can be applied to AirAsia X without difficulty.

Budget airlines usually fly just one model of aircraft to keep cut maintenance costs low. Again this strategy can be re-used in AirAsia X.

Budget airlines also don’t offer in-flight meals, though food and drinks can be purchased on-board. For short-distance flights less than 3 hours, passengers can endure hunger. But for Malaysia-to-UK flight, practically everybody wants 2 meals or more, unless they are fasting or on diet. This is where long-haul and short-haul flights diverge.

AirAsia X will also rely on e-ticketing to cut cost. This strategy, however, has been imitated by full-service airlines, so the competitive advantage of AirAsia X, or any no-frills airlines for that matter, is being eroded.

Budget airlines schedule quick turnarounds to keep planes in the air longer. For example, I flew to Chiang Mai from Kuala Lumpur recently with the original AirAsia. The plane turned back in half an hour after touching down in Chiang Mai. For inter-continental long-haul flights, I am not sure whether the aircrafts need maintenance, but the pilots and cabin crew definitely need rest. Accommodation and meal will add to the operating costs.

I suspect Tony Fernandes will look to on-board advertising as an alternative source of revenue. Traditional full-service airlines have always done this with their in-flight magazines. I doubt AirAsia X will offer its own in-flight magazine. More likely, we will see advertisements on the back of passenger seats. This strategy, however, can be copied by competitors.

Finally, there is the question of whether the market is big enough. (I discussed this issue in one of my previous posts.) As we know, we are not allowed to re-schedule our flights easily with budget airlines. I feel that for long-distance trips, flexibility becomes more important. It may be just me. Or perhaps there are many others who think in the same way.

For flights longer than 6 hours, I also believe that many passengers will choose comfort over cost. This is similar to overland journey. For city trips, we don’t mind ‘standing’ inside a bus or a train. For trips longer than half an hour, we want seats. For overnight travel, we want reclining seats. If we fly from one continent to another, larger legroom is certainly desirable.

Destinations of the flights will also affect our decision. While I may be able to get roundtrip flights at affordable price, a 5-pound meal in UK’s McDonald’s is still too much for me. I suspect majority of the AirAsia X passengers will be Europeans rather than South-east Asians. Or I may be wrong. Tall Europeans may find the legroom in the aircrafts too restricting.

So will AirAsia X succeed? This is certainly possible. But Tony Fernandes will have to be very ingenious to make his company competitive.